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NetApp (NTAP) Looks Promising on Upbeat Q2: Should You Buy?

NetApp Inc. NTAP shares have been rallying since second-quarter fiscal 2019 earnings release on Nov 14. In fact, the company has outperformed the industry in the past year.

Shares of NetApp have gained 31.4% against the industry’sdecline of 12.4%. The company’s impressive price performance can be attributed to its laudable earnings surprise history. The company surpassed earnings estimates in the trailing four quarters, recording average beat of 12.8%. The company has a long-term expected EPS growth rate of 14.1%.

NetApp delivered fiscal second-quarter 2019 non-GAAP earnings of $1.06 per share, outpacing the Zacks Consensus Estimate by 7 cents. The figure also surged 32.5% from the year-ago period and was within the guided range.

Revenues of $1.517 billion increased 7.2% from the year-ago quarter, surpassing the Zacks Consensus Estimate of $1.511 billion. The figure was within the guided range.

Encouraging Outlook

For third-quarter fiscal 2019, NetApp expects non-GAAP earnings between $1.12 and $1.18 per share. The Zacks Consensus Estimate is pegged at $1.14.

Net revenues are anticipated to be in the range of $1.55-$1.65 billion, implying growth of 4% at the mid-point from the year-ago quarter (including 1 point impact of exchange rate fluctuations). The Zacks Consensus Estimate is pegged at $1.60 billion.

For fiscal year 2019, NetApp continues to anticipate net revenues to increase in mid-single digits.

Growth Drivers

Solid product adoption, increasing deal wins, and expanding customer base across varied geographies are key positives. Moreover, the company’s transition to data fabric strategy (a software-defined approach to data management) has been a key catalyst behind Enterprise License Agreement (“ELA”) wins.

Further, NetApp witnessed increased momentum of its hyper-converged infrastructure (HCI) solutions from enterprises undergoing digital transformation. In fact, the company’s HCI is anticipated to be a positive for the top line in the long haul. Expanded new cloud partnerships and open source projects were other tailwinds.

In a bid to expand presence in China, NetApp entered into a multi-year partnership with Lenovo. This enabled the company to expand capabilities of Data Fabric strategy, consequently its adoption. The partnership is aimed at enabling enterprises to accelerate digital transformation of their business processes.

NetApp is increasingly focused on strengthening its hybrid cloud domain with new capabilities. The company recently acquired StackPointCloud, a provider of cloud-based Kubernetes as-a-service (“KaaS”), for an undisclosed amount in a bid to release Kubernetes service.

NetApp’s converged infrastructure capabilities continues to expand. The new NetApp Kubernetes Service (“NKS”) designed for multi-cloud deployments supports cloud-based stack for leading cloud platforms, including the likes of Amazon’s AMZN Amazon Web Services ("AWS"), Microsoft’s MSFT Azure, Google Cloud, and the company’s NetApp HCI platform.

The company also announced open source project —Trident. The new NKS along with Trident are aimed at assisting software developers to create and deploy robust applications on leading cloud and private cloud platforms by leveraging the company’s high performance broad-based storage portfolio.

In an effort to extend the utilization of NetApp Data Fabric, the company unveiled new data services and FlexPod solutions. These initiatives will enable enterprises to capitalize on the potential of artificial intelligence (AI).

The company partnered with DreamWorks in a bid to develop a robust IT infrastructure and data services leveraging NetApp’s Data Fabric.

The company also launched NetApp ONTAP AI proven architecture, which accelerates accessibility to data as per the scale and speed requirements of AI. The architecture leverages NVIDIA’s NVDA DGX supercomputers.

The company also introduced MAX Data solution to enable utilization of persistent storage memory in servers. The new solution is aimed at accelerating data processing suitable for AI application standards, enabling data analytics in real-time.

Furthermore, the company enhanced its HCI portfolio with new enhancements. In a bid to facilitate virtualization technology processes in virtual desktop infrastructure (“VDI”), NetApp enabled support for compute nodes which are GPU-based. The new capabilities also include support for OpenShift Container Platform of Red Hat.

The company is positive about making the most of the exponential rate of data growth with its cloud-integrated all-flash solutions that fit well with hybrid cloud infrastructure. During the second quarter, the company’s all-flash array business surged 29% on a year-over-year basis. Its annualized net revenue run rate was $2.2 billion. The cloud data services recorded a run-rate of $27 million.

The company’s expertise in the flash array market is aiding its popularity in storage area network (SAN) and converged infrastructure markets.

Bottom Line

A successful investor understands the importance of adding well-performing stocks in the portfolio at the right time. Indicators of a stock's bullish run include a rise in share price and strong fundamentals. Consequently, investment in this this Zacks Rank #2 (Buy) stock will be a lucrative option at least for the time being.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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